Fostering Change

Humboldt Creamery's dairy farmers stay alive, but with new masters

OK, so Humboldt Creamery has been rescued from total collapse by Foster Farms Dairy, thanks to the privately held company's $19.25 million winning (and only) bid last week in a Santa Rosa federal bankruptcy court. Good news, by most accounts. But what does it actually mean? How will life change for the 40 local dairy producers who, until recently, owned 75 percent of the 80-year-old Creamery? What's to become of the 150-odd Creamery employees? How about the $380,000 that locals invested in the Creamery shortly before CEO Rich Ghilarducci skipped town in February, leaving behind cooked books and a sour aftertaste? For that matter, what about the $54 million owed to the bank? And the milk -- will it still say "Humboldt Creamery" on the label? Even if it does, will it mean the same thing?

Let's start with the jobs: "All the plant employees and route drivers will be offered positions," Foster Farms Dairy CEO Jeff Foster told the Journal Tuesday afternoon. He added that the company still has to negotiate with the workers' union.

Foster Farms Dairy -- a separate legal entity from the Foster Farms poultry company -- employs about 950 people and produces roughly three million gallons of milk per week, compared to Humboldt Creamery's 670,000 gallons. Foster, whose grandparents, Max and Verda Foster, launched the business almost 70 years ago, said he was attracted by the Humboldt Creamery brand, and indeed, the acquisition appears to have advantages for both sides -- with Humboldt Creamery's pasture-fed, rBST (growth hormone)-free cows a boon to Foster Farms, which in turn offers a much larger organization and distribution system to North Coast dairy farmers: more than 150 route trucks shipping directly to Central Valley stores. "We want to expand the Humboldt Creamery brand into a much larger geography and grow the organic products," Foster said.

But some local dairy farmers, still smarting from the devastating revelations that followed Ghilarducci's departure, are skeptical about the new arrangement. "We just have to be cognizant that Foster Farms is not purchasing our milk directly," said Judy Ferreira, whose husband's family has operated a dairy in the Arcata Bottoms since 1955. In all likelihood, the Dairy Farmers of America, a nationwide cooperative that owned the other 25 percent of Humboldt Creamery, will now act as a go-between, buying milk from local farmers then selling it to Foster Farms. Which means a painful loss of control for farmers like the Ferreiras. "Not owning the co-op -- it breaks your heart, but it doesn't stop the dairy business." Ferreira said, sounding weary yet resigned. "Whatever Foster Farms does, it could be good for us or maybe not at all, because we're not working directly with [distributors] anymore."

The outcome for Creamery investors is slightly clearer, if not sunnier. Unsecured investors -- some of whom had hundreds of thousands in the company; others bought shares of preferred stock just days before Ghilarducci's vanishing act -- will not get all their money back, nor even a majority of it, according to interim CEO Len Mayer. Such is the nature of Chapter 11 bankruptcy. The bank handling the process, CoBank, did show confidence in the Creamery as a going concern, advancing them $3 million -- despite their $54 million debt -- in order to keep things running.

At last week's bankruptcy hearing, a group of investors initially objected to the Foster Farms deal, saying the bank stood to benefit most, with only table scraps left for the duped investors. Their objections were alleviated through lawyer negotiations, clearing the way for judicial approval. The $19.25 million price tag, which does not include Humboldt Creamery's Los Angeles and Loleta facilities (likely to be sold off separately), remains subject to change until the deal officially closes next week. "Our hope," Mayer said, "is that everybody is gonna get something as a result of this deal."

Which brings us to the milk -- and the ice cream, powdered milk, sour cream and various other dairy products that bear Humboldt Creamery packaging. Foster Farms generally markets its products under the Crystal label. Will they keep our local packaging, with its quaint, line-drawn landscape of happy cows munching grass on a rural farm? And if so, will it mean the same thing?

"Absolutely," Foster said. "Humboldt Creamery has a great name and a great following. What it stands for is fresh, local, quality products, and that fits right in with our business." Mayer, too, sounded excited by the arrangement. "They're very enthusiastic about this deal," Mayer said. "They don't plan to simply combine these two businesses; they plan to combine and grow them."

In the questions-yet-unanswered category: Just what the hell happened under Ghilarducci? The FBI will be in town shortly to investigate. "I feel like we have a fairly clear idea, but we're probably not ready to talk about it," Mayer said. The ordeal revealed a foundering business where people thought they had a success story, and the effects of that nightmare have been brutal. "All that is starting to melt away," Mayer said. "My hope and my belief is there will be a lot less heartburn out there."